ITO 8(1)(1), MUMBAI V. ANAND AGROCHEM INDIA LTD, MUMBAI

ITA 6115/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1071 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2005-2006
• Appeal Filed On: 20-11-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUM EET KUMAR
• Assessee Lawyers: W HASAN

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, D, MUMBAI BEFORE SHRI R V EASWAR, PRESIDENT AND SHRI R K PANDA, ACCOUNTANT MEMBER I T A NO: 6115/MUM/2009 (ASSESSMENT YEAR: 2006-07) INCOME TAX OFFICER 8(1)(1), MUMBAI APPELLANT VS M/S ANAND AGROCHEM INDIA LTD., MUMBAI RESPONDENT (PAN: AADCA4385N) APPELLANT BY: SHRI SUMEET KUMAR RESPONDENT BY: SHRI W HASAN O R D E R R V EASWAR, PRESIDENT: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 22.09.2009 PASSED BY THE CIT(A) BY WHICH HE C ANCELLED THE PENALTY OF RS.34,50,150/- IMPOSED ON THE ASSESSEE U NDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961. 2. THE APPEAL ARISES THIS WAY. THE ASSESSEE IS A C OMPANY ENGAGED IN THE MANUFACTURE OF SUGAR AND MOLASSES. WE ARE CONCERNED WITH THE ASSESSMENT YEAR 2006-07. WHILE COMPLETING THE ASSESSMENT UNDER SECTION 143(3), THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD CLAIMED DEDUCTION IN RESPECT OF A SUM OF RS.1,02,50,000/- PAID AS LEASE RENT IN RESPECT OF T HE BOILER HOUSE. THE AMOUNT WAS DEBITED TO THE PROFIT AND LOSS ACCOU NT AS PART OF THE MANUFACTURING AND OTHER EXPENSES. FROM THE DET AILS FILED BY THE ASSESSEE IN SUPPORT OF THE CLAIM FOR THE DEDUCT ION, THE AO NOTICED THAT THE PROVISIONS OF SECTION 194.I WERE A TTRACTED, UNDER WHICH THE ASSESSEE WAS LIABLE TO DEDUCT TAX FROM TH E RENT. THE ITA NO: 6115/MUM/2009 2 ASSESSEE HAD OMITTED TO DO SO. ACCORDINGLY THE AO INVOKED SECTION 40(A)(IA) UNDER WHICH ANY PAYMENT FROM WHIC H TAX LIABLE TO BE DEDUCTED BY THE ASSESSEE WAS NOT DEDUCTED, WAS L IABLE TO BE DISALLOWED IN COMPUTING THE PROFITS OF THE BUSINESS . ACCORDINGLY THE AO DISALLOWED THE AFORESAID AMOUNT. 3. THE ASSESSEE FILED AN APPEAL AGAINST THE DISALLO WANCE BEFORE THE CIT(A) BUT SINCE IT COULD NOT PAY THE AD MITTED TAX AS REQUIRED BY SECTION 249(4), THE APPEAL COULD NOT BE ADMITTED FOR HEARING. 4. PENALTY PROCEEDINGS WERE INITIATED BY THE AO FOR CONCEALMENT OF INCOME AND IN REPLY TO THE SHOW CAUS E NOTICE THE ASSESSEE SUBMITTED THAT WHAT SECTION 194.I REQUIRED WAS THAT THE RENT SHOULD HAVE BEEN PAID FOR LAND AND BUILDING AN D SINCE THE ASSESSEE HAD PAID LEASE RENT NOT IN RESPECT OF THE LAND OR BUILDING BUT IN RESPECT OF THE BOILER THAT HAS BEEN ERECTED ON ITS OWN LAND, THE SECTION WAS NOT ATTRACTED. IT WAS ALSO POINTED OUT THAT THE AFORESAID CLAIM WAS SUPPORTED BY THE LEASE AGREEMEN T WHICH HAD BEEN FILED IN THE COURSE OF THE ASSESSMENT PROCEEDI NGS. THE ASSESSEE FURTHER POINTED OUT THAT IT WAS ONLY WITH EFFECT FROM 13.07.2006 THAT SECTION 194.I WAS AMENDED TO INCLUD E RENT PAID FOR MACHINERY, PLANT AND EQUIPMENT AND THAT THE SAID AM ENDMENT WAS APPLICABLE ONLY FROM THE ASSESSMENT YEAR 2007-08. IT WAS FURTHER SUBMITTED THAT ALL THE DETAILS RELATING TO THE CLAI M FOR DEDUCTION OF THE LEASE RENT FOR THE BOILER HOUSE WERE FURNISHED IN THE COURSE OF THE ASSESSMENT PROCEEDINGS AS WELL AS IN THE RETURN AND ACCOUNTS FILED BEFORE THE AO AND THAT MERELY BECAUSE THE AO TOOK A DIFFERENT ITA NO: 6115/MUM/2009 3 VIEW OF THE ADMISSIBILITY OF THE CLAIM BASED ON HIS OWN INTERPRETATION OF THE SECTION, IT DID NOT FOLLOW THAT THE ASSESSEE WAS GUILTY OF CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE P ARTICULARS THEREOF. 5. THESE SUBMISSIONS DID NOT IMPRESS THE AO, WHO HE LD THAT SINCE THE ASSESSEE DID NOT DEDUCT TAX FROM THE LEAS E RENT IN ACCORDANCE WITH SECTION 194.I, THE CLAIM FOR DEDUCT ION OF THE SAME WAS NOT ALLOWABLE AND CONSEQUENTLY THE ASSESSEE WAS LIABLE FOR PENALTY. ACCORDINGLY HE IMPOSED A PENALTY OF RS.34 ,50,150/-. 6. ON APPEAL, THE ASSESSEE REITERATED ITS SUBMISSIO NS MADE BEFORE THE AO. THE CIT(A) ACCEPTED THEM AND HELD T HAT BEFORE THE AMENDMENT MADE WITH EFFECT FROM 13.07.2006, THERE W AS NO REQUIREMENT IN SECTION 194.I THAT LEASE RENT PAID F OR PLANT AND MACHINERY SHOULD BE SUBJECTED TO DEDUCTION OF TAX A T SOURCE AND THAT THE AMENDMENT CAME INTO EFFECT ONLY FROM THE A SSESSMENT YEAR 2007-08. HE ACCORDINGLY HELD THAT THE ASSESSE E WAS NOT LIABLE FOR PENALTY AND CANCELLED THE SAME. 7. IT IS AGAINST THE AFORESAID ORDER OF THE CIT(A) THAT THE DEPARTMENT HAS COME IN APPEAL BEFORE THE TRIBUNAL. 8. WE HAVE CAREFULLY CONSIDERED THE FACTS AND THE R IVAL CONTENTIONS. SECTION 194.I REQUIRES ANY PERSON PAY ING RENT TO DEDUCT THE TAX AT THE TIME OF THE PAYMENT THEREOF O R AT THE TIME WHEN THE RENT IS CREDITED TO THE ACCOUNT OF THE PAY EE, AT THE PRESCRIBED RATES. THERE IS AN EXPLANATION BELOW TH E SECTION AND CLAUSE (I) THEREOF PROVIDED THAT RENT MEANS ANY PAY MENT, BY WHATEVER NAME CALLED, UNDER ANY LEASE, SUB-LEASE OR TENANCY OR ITA NO: 6115/MUM/2009 4 UNDER ANY OTHER AGREEMENT OR ARRANGEMENT FOR THE U SE OF ANY LAND OR ANY BUILDING (INCLUDING FACTORY BUILDING), TOGET HER WITH FURNITURE, FITTINGS AND THE LAND APPURTENANT THERETO, WHETHER OR NOT SUCH BUILDING IS OWNED BY THE PAYEE. A PERUSAL OF THIS PROVISION SHOWS THAT ANY RENT PAID IN RESPECT OF PLANT OR MACHINERY OR EQUIPMENT WAS NOT COVERED BY THE SAME AND THEREFORE THE ASSES SEE WAS NOT UNDER ANY OBLIGATION TO DEDUCT TAX FROM THE RENT PA ID IN RESPECT OF THE BOILER. ACCORDING TO THE LEASE AGREEMENT, A CO PY OF WHICH HAS BEEN PLACED ON RECORD, WHAT THE ASSESSEE TOOK ON RE NT FROM SIDDHARTH TANKS & VESSELS PVT. LTD. WAS THE BOILER AND CONNECTED EQUIPMENTS AS CAN BE SEEN FROM THE SCHEDULE ANNEXED TO THE LEASE AGREEMENT. A FURTHER FACT WHICH HAS BEEN ACC EPTED BY THE AO HIMSELF AT PAGE 2 OF THE ASSESSMENT ORDER IS THA T THE BOILER HAS BEEN ERECTED ON THE LAND INSIDE THE FACTORY OF THE ASSESSEE ITSELF. FROM 13.07.2006 THERE WAS AN AMENDMENT MADE TO CLAU SE (I) OF THE EXPLANATION WHICH INCLUDED MACHINERY, PLANT AND EQUIPMENT. THUS IT IS ONLY FROM THE ASSESSMENT YEAR 2007-08 TH AT THE LEASE RENT PAID IN RESPECT OF MACHINERY OR PLANT OR EQUIP MENT WAS ALSO INCLUDED IN SECTION 194.I, MAKING AN ASSESSEE LIABL E TO DEDUCT TAX THEREFROM. SINCE THE AMENDMENT DID NOT OPERATE FRO M THE FIRST DAY OF THE ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE W AS NOT LIABLE TO DEDUCT TAX FROM THE LEASE RENT PAID IN RESPECT O F THE BOILER. THIS IS WHAT THE CIT(A) HAS HELD AND WE AGREE WITH HIS C ONCLUSION. IF THE ASSESSEE IS NOT LIABLE AT ALL TO DEDUCT TAX, THERE CAN BE NO QUESTION OF DISALLOWANCE OF THE LEASE RENT BY INVOKING SECTI ON 40(A)(IA) AND CONSEQUENTLY THE ASSESSEE CANNOT BE SAID TO HAVE CO NCEALED ITS ITA NO: 6115/MUM/2009 5 INCOME BY MAKING THE CLAIM IN THE RETURN. IN ANY C ASE FOR THE PURPOSE OF LEVYING PENALTY WE ARE NOT TO SEE WHETHE R THE CLAIM IS CLEARLY ALLOWABLE OR NOT AND WHAT WE HAVE TO SEE IS WHETHER THE ASSESSEE ACTED BONA FIDE IN MAKING THE CLAIM. THE PROVISIONS OF SECTION 194.I AS THEY STOOD FOR THE ASSESSMENT YEAR UNDER APPEAL CLEARLY SUPPORTED THE ASSESSEES CLAIM ESPECIALLY W HEN IT IS NOT DISPUTED THAT THE RENT WAS PAID IN RESPECT OF A BOI LER WHICH CAN BE CHARACTERIZED ONLY AS PLANT OR MACHINERY OR EQUIPME NT. THE ASSESSEE THEREFORE BONA FIDE THOUGHT THAT IT WAS NO T LIABLE TO DEDUCT TAX FROM THE LEASE RENT ACCORDING TO THE LAW WHICH STOOD ON THE FIRST DAY OF THE ASSESSMENT YEAR. IN ANY CASE IT IS A QU ESTION OF DEBATE AS TO WHETHER THE AMENDMENT MADE TO SECTION 194.I W OULD ALSO APPLY TO THE ASSESSMENT YEAR UNDER APPEAL. THE ASS ESSEE HAS PLACED ALL THE FACTS RELATING TO THE CLAIM SUCH AS THE PROFIT AND LOSS ACCOUNT, BALANCE SHEET AND THE LEASE AGREEMENT BEFO RE THE AO. IT IS ONLY BECAUSE OF THE VIEW WHICH THE AO TOOK REGAR DING THE APPLICABILITY OF THE AMENDED SECTION 194.I THAT HE DISALLOWED THE LEASE RENT. IT IS WELL SETTLED, HAVING REGARD TO T HE FOLLOWING JUDGMENTS THAT WHEN ALL THE FACTS ARE PLACED BEFORE THE AO, MERELY BECAUSE HE TOOK A DIFFERENT VIEW OF THE MATTER NO P ENALTY CAN BE IMPOSED FOR CONCEALMENT OF INCOME: - 1. ADDITIONAL CIT VS. DELHI CLOTH & GENERAL MILLS CO . LTD. (1984) 157 ITR 822 (DEL) 2. CIT VS. LATE G D NAIDU (1987) 165 ITR 63 (MAD) 3. BURMAH SHELL OIL STORAGE & DISTRIBUTING COMPANY O F INDIA LTD. (1987) 163 ITR 496 (CAL) 4. CIT VS. INTERNATIONAL AUDIO VISUAL (2007) 288 ITR 5 70 (DEL) 5. CIT VS. NATH BROS EXIM INTERNATIONAL (2007) 288 ITR 670 (DEL) 6. CIT VS. SANTOSH FINANCIERS & ORS (2001) 247 ITR 742 (KER) 7. CIT VS. RELIANCE PETROPRODUCTS PVT. LTD. (2010) 322 I TR 158 (SC) ITA NO: 6115/MUM/2009 6 HAVING REGARD TO THE AFORESAID LEGAL POSITION AS AP PLIED TO THE FACTS OF THE PRESENT CASE WE CONFIRM THE DECISION OF THE CIT(A) CANCELLING THE PENALTY AND DISMISS THE APPEAL FILED BY THE REV ENUE WITH NO ORDER AS TO COSTS. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD JULY 2010. SD/- SD/- (R K PANDA) (R V EASWAR) ACCOUNTANT MEMBER PRESIDENT MUMBAI, DATED 23 RD JULY 2010 SALDANHA COPY TO: 1. M/S ANAND AGROCHEM INDIA LTD. AJANTA COMPLEX, 2 ND FLOOR, 8, JUHU TARA ROAD SANTACRUZ (WEST), MUMBAI 400 049 2. ITO 8(1)(1) 3. CIT-VIII 4. CIT(A)-16 5. DR D BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI